When you owe more than you own, it can be difficult to find a way out. Debt can make everything seem like an uphill battle – and all the while, it continues to grow. But there are options available that might not have been on your radar before.
One such option is equity release. This amazing financial product allows you, if you are over the age of 55, to unlock cash tied up into your home! Here’s how!
Is Equity Release a Good Option for Paying Off Debts?
The short answer is yes.
Equity release has a lot of benefits that can help you in your debt repayment journey, including:
- Accessing to tax-free money earlier, rather than later.
- Being able to retain your home without fear.
- There are no monthly repayments required.
- Having a guaranteed income through retirement.
- Potentially accessing lower interest-rates than your other debts.
There is also an emotional benefit – knowing you have one less thing to worry about because your assets will be looked after should anything happen.
How is Equity Release Different than Other Solutions?
Many people don’t know they’re eligible for equity release until it’s too late. The problem is that there aren’t many solutions for getting out of debt that is as straightforward as this one, with no need to reapply or adjust your budget.
In a way, equity release is different from other options because it doesn’t just help you get out of debt – it can also provide an income for retirement and save against inflation.
There are some differences between equity release and other methods like bankruptcy1 or debt management plans, but these depend on how much money you owe and what type of situation you’re facing; if those details apply to you, then speak to a professional about what’s the best solution for your circumstances.
What Types of Debt Can Be Paid Off by Equity Release?
Another thing to note is that the equity released can be used on any debt. You don’t need to have a specific loan or mortgage for this option to work.
The only thing that might be different is the amount of money you receive each month – this can change due to debt management plans2 or bankruptcy. Still, depending on factors like age and mortgage repayments, equity release will often provide more funds than either option would, and there are no monthly repayments or interest that need to be paid.
Using Equity Release to Pay Off Debt
Homeowners can use equity release as it does not require you to sell their house at retirement age.
One option to explore is an equity release plan that provides monthly tax-free income, which could help you meet your day-to-day needs and pay off your debts through instalments.
This type of arrangement may suit people who would like to remain living in their own home until death but are concerned about being able to afford it when they stop work or retire. Note that you may have to forfeit your state benefits by taking out an equity release plan in some cases.
It’s worth noting that if a homeowner dies before paying off all debts, then any remaining debt will be passed onto those named on the property deed as next of kin (cohabitees).
Discover: Alternative Uses of Equity Release
4 Advantages of Using Equity Release to Pay Debt
There are many advantages to using equity release for debt, including:
- You can get a fixed rate for the rest of your life, which is great if you want to know how much it will cost.
- An equity release plan could help reduce or remove monthly mortgage repayments and provide security in retirement. For example: by releasing 50% of the value of your property, you may be able to retire from employment at 65 years old when only renting out half your home.
- The funds released, plus interest, are deducted from the sale of your home when you pass away or move into permanent care so it is a loan that you won’t need to repay in your lifetime.
- There may not be enough money left over after paying off debt with the proceeds from selling your house, should you rather wish to downsize. With low interest rates, you can likely release sufficient funds from your home.
4 Potential Disadvantages of Using Equity Release to Pay Debt
There are some potential disadvantages to using equity release for debt, including:
- Funds released may not cover all the debts.
- Lenders will normally require a house purchase plan with an equity release lender or that they are your sole residuary beneficiary. This means their name goes on the deeds of the property when you die, which can affect any other inheritance rights for family members after death, so this must always be considered as part of any financial planning.
- Always first use savings. Equity release does decrease your inheritance.
- Equity release may not be appropriate for individuals who have sold their house, but still need to purchase another one. For example, someone might want to take equity from the sale of their home and use it to buy somewhere cheaper or smaller, in which case an alternative solution like using savings would suit better.
Also check: The Pros and Cons of Equity Release
Do I Have to Be of Retirement Age Before Making an Equity Release Application?
No, it’s possible to release equity from any property as long as there are no mortgages or secured loans against it.
If I Have a Mortgage on My Property, Can I Use Equity Release to Pay Off This Debt?
Yes, you can. Equity release is not just for those who don’t own their home; it’s also suitable if you’re looking to retire from work or want more security in retirement.
How Much Does Equity Release Cost?
Equity release is not a free service – you’ll pay for it in the form of monthly repayments. The cost will be based on your home’s estimated value, how much debt you have, and what type of plan you’re using (for example: whether they want to buy their property back at any time or rent from retirement).
This means that equity release can range anywhere between £400 per month upwards depending on individual circumstances.
How Long Will It Take to Pay Off Debt With Equity Release?
Equity release is paid for over a period of time, which means that the monthly repayments depend on how much money you have and what type of plan you’re using.
This can range from 20 years when paying back in one lump sum up to 65 years if they opt for an annuity income or term certain life assurance policy.
If you’re considering equity release, keep in mind that it’s a long-term solution. Equity release is not a short-term way to get out of debt and should be considered part of an overall financial plan.
Be sure to get appropriate financial advice from an independent adviser before using equity release to pay off your debts.
It does require extensive research into the various equity release providers, so make sure to do your homework before making any decisions!